12J Investing for Instant Tax Relief

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Section 12J of the Income Tax Act – the most effevtive tool for tax saving, provided by SARS and government that allows you to hold on to your tax cash while investing it tactfully. The main objective of the Section was to grow and assist small- and-medium-sized businesses in specific growth-targeted industries namely hospitality and tourism, agriculture, energy and manufacturing. Other qualifying businesses include student residences, renewable energy companies, and general SMMEs.

Since 2008, Section 12J has been part of South Africa’s Income Tax Act and provided investors with an immediate tax deduction equating to 100% of the amount they have invested. In turn, approximately R10.34 billion has found its way via the Section 12J initiative into smaller businesses, creating between 9,000 to 10,500 jobs.

The section distinctly aims to aid in the growth of small and medium sized businesses through increasing their access to equity finance. To attract investors into this typically under-funded sector, which is imperative for driving economic growth, SARS has written Section 12J into the Tax Act, which offers taxpayers a 100% tax deduction in the year of investment if they invest in SMMEs by way of subscription of shares in a Section 12J Venture Capital Company. The full amount invested with Optomise (100%) is deductible from the taxable income in the year in which the investment is made. This applies to individuals, companies as well as trusts.

The 12J product follows the standard process of; as an investor, you invest into a 12J Venture Capital Company, which in turn invests into a property holding company, which purchases the property. The investor may receive dividends during the investment period, but they need to be invested for five years before they can redeem their initial investment. The investor then enjoys a tax refund of up to 45% on that investment.

12J Investing is also one of the only mechanisms to access direct renewable energy investments, and its High Income II fund allocates 47% of the portfolio to this sector to provide investors with access to the enormous growth in this market segment.

12J Investing

For an Investee to qualify for 12J Investing…

• Investees must be a company and must be residents in South Africa.

• They cannot be a controlled group company in relation to a group of companies.

• Investee company’s tax affairs must be in order (a tax clearance certificate must be requested from SARS to support this requirement).

• The company must be unlisted (section 40 of the Act) or it must be a junior mining company.

• During any year of assessment, the sum of the ‘investment income’ derived by the company must not exceed 20% of its gross income for that year.

The qualifying company must not carry on a trade in any of the following sectors:

– Any trade in immoveable property, except as a hotel keeper (includes bed and breakfast establishments);

– Financial service activities namely banking, insurance, money-lending and hire purchase financing;

– Provision of financial or advisory services, including legal, tax advisory, stock broking, management consulting, auditing, or accounting;

– Operating casinos or other gambling activities, including any games of chance;

– Manufacturing, buying or selling liquor, tobacco products or weapons or ammunition; or

– Any trade carried out mainly outside South Africa

At Dream Team Capital, we understand the specific criteria and requirements for investment that will produce a profitable outcome. Let us assist you with the necessary developments and provide access to our network of funders, from across South Africa!


Investee’s are invited to contact us for assistance.